Commentary on " Were Banks Special Intermediaries in Late Nineteenth Century America?

O ne of the hallmarks of Eugene White’s scholarship is his knack for using detailed historical examples to raise large, thought-provoking questions. “Were Banks Special Intermediaries in Late Nineteenth Century America?” is no exception. White combines case studies of two small financial institutions, the Bank of A. Levy and the Emigrant Savings Bank, with other information on nineteenth-century banking theory and practice to highlight banks’ “specialness” during that period—that is, their unique ability to serve as delegated monitors for savers. He then argues that a fall in the cost of information eroded this specialness in the twentieth century. The result, according to White, was a steep decline in banks’ share of the assets of financial intermediaries. My goal in this comment is less to criticize White’s argument than to amplify and recharacterize it—to make stronger his case that, by the early twentieth century, banks had lost many of the attributes that allowed them to perform the role of delegated monitors more effectively than other kinds of financial institutions. I will begin by countering White’s case studies with the example of a late nineteenth-century institution, the Suffolk Bank of Boston, that had largely abrogated its position as delegated monitor. I will then use what is known about the evolution of managerial practice within banks in the late nineteenth and early twentieth centuries to argue that the Suffolk example is more representative of historical trends than the cases White describes. Banks’ earlier informational advantage had derived from the imbeddedness of their officers in the communities within which they did most of their lending. As credit markets lost their local character, these advantages disappeared, and banks increasingly had to rely on the same general information sources as other financial institutions.